ECON 25100 Lecture 2: Econ Lecture 2.5- 8/23

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3 Sep 2018

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Bob and Stella are a married couple. Bob takes 10 minutes to changea lightbulb and 2 minutes to fix a broken fuse. Stella takes 3minutes to change a light bulb and 30 seconds to fix a broken fuse.Which of the following are true? Explain why each statement is trueor false.
a) Stella has a comp adv at fixing fuses, b/c she can do it fasterthan Bob.
b) Stella has a comp adv at changing light bulbs and fixing fuses,b/c she can do both them faster than Bob
c) Stella has an absolute adv at changing lightbulbs and fixingfuses, b/c she can do both of them faster than Bob
d) Bob has a comp adv at fixing fuses, b/c Stella has a comp adv atchanging lightbulbs
e)Stella has a comp adv at changing lightbulbs.

The two leading Us Manufacturers of high performance radial tires must set their advertising strategies for the coming year. Each firm has two strategies avaliable: maintain current advertising or increase advertising by 15%. The strategies available to the firms, A and B, are presented in the payoff matrix below.

Firm B

.........................................Increase Adv........Maintain Adv

Firm A, Increase Adv. 27,27.......................50,12

Maintain Adv. 12,50........................45,45

Explain the strategy that should be used by each firm. Support your choce by including numbers.

The two leading U.S. manufacturers of high performance radial tiresmust set their advertising strategies for the coming year. Eachfirm has two strategies available: maintain current advertising orincrease advertising by 15%. The strategies available to the twofirms, G and B, are presented in the payoff matrix below.
Firm B
Increase Adv. Maintain Adv.
Firm G Increase Adv. 27, 27 50, 12
Maintain Adv. 12, 50 45, 45

The entries in the individual cells are profits measured inmillions of dollars. Firm G's outcome is listed before the comma,and Firm B's outcome is listed after the comma.
Which oligopoly model is best suited for analyzing this decision?Why? (Remember it is illegal to collude in the UnitedStates.)
Is there a dominant strategy for each firm? What is it?. Justifyyour choice

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ECON 25100 Lecture 2: Econ Lecture 2.5- 8/23

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